Interview – Starwood Hotels on MENA expansion frenzy

Starwood Hotels & Resorts Worldwide Inc will open 50 new hotels in the Middle East and Africa (MEA) over the next five years as the company bets on emerging markets to boost revenue.

The U.S.-based company operates nine hotel brands including Sheraton and Le Meridien, with MEA accounting for less than a 10th of its 1,134 properties worldwide, but the region’s relative importance is set to increase.

Starwood owns less than 5 percent of the hotels it operates, managing the remainder on behalf of their owners.

The United Arab Emirates will account for nearly a quarter of its new hotels in MEA, raising its portfolio to 33 from 21.

Van Paasschen was unconcerned about potential over-supply despite a glut of luxury hotels opening over the past decade and plans for another 100 hotels in Dubai as part of a government-led development project.

“This market is very strong – demand for high-end travel globally is increasing, there are new travel patterns and Dubai sits at the epicentre of that,” he said.

Starwood’s Dubai hotel occupancy in percentage terms is in the high 80s to low 90s, up from 82 percent in 2009, while passenger flows through the city’s main airport rose 15 percent to 5.56 million in January from a year ago, making it the world’s third busiest airport.

Starwood’s revenue will likely increase 5-7 percent in 2013.

“Because occupancies are already so high – we’re at pre-crisis levels – most of the “same-store” growth will come from higher rates,” said Van Paasschen. “We would expect a region as dynamic as here to outperform those global numbers, both in new hotels being added and same-store sales.”

Van Paasschen said Starwood’s 10 hotels in Egypt suffered a “dramatic drop” in occupancy after former president Hosni Mubarak was ousted from power in 2011, with the country still mired in unrest more than two years later.

“We’ve seen a return in demand in our resort locations more than in Cairo,” said van Paasschen.

Rival Marriott International has partnered with IKEA’s real estate arm to create a European budget hotel chain, but Starwood will not follow suit.

“You would have to open an extraordinary number of hotels to get anywhere near the profitability of just a few high-end hotels,” said van Paasschen.

Starwood has about 160 hotels in Europe and plans to open a further 50 on the continent over the next five years, with travelers from other regions making up for a shortfall in demand from Europeans.

“Demand for gateway city locations in Europe is as high as it has ever been,” said van Paasschen. “High-end leisure is still an important aspect of demand. Europe overall may be struggling, but for hotels business is very good.”